 |
 |
News & Developments
May 15, 2012
Sackett Ruling Will Probably Not Impact CERCLA Enforcement
On March 21, 2012, the U.S. Supreme Court issued a unanimous decision in Sackett v. EPA (No. 10-1062). Although Sackett holds that the recipient of a compliance order from the Environmental Protection Agency (EPA) pursuant to the Clean Water Act (CWA) may seek pre-enforcement judicial review to challenge the EPA’s authority, many wonder whether the decision will also affect the EPA’s authority under other similar statutes, namely, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The short answer is that Sackett probably will not have an immediate impact on compliance orders issued pursuant the CERCLA, but the case demonstrates the Supreme Court’s growing frustration toward the EPA’s tactics and keeps the door open for future constitutional challenges.
The EPA issues approximately 3,000 compliance orders each year pursuant to environmental laws like the CWA and CERCLA. Prior to Sackett, five courts of appeals had held that the CWA precluded pre-enforcement review of compliance orders, and that such preclusion did not violate due process. Going forward, however, entities or individuals who receive compliance orders pursuant to the CWA may challenge the EPA’s authority by invoking the Administrative Procedures Act (APA). Notably, in reaching its decision, the Court observed that nothing in the CWA precludes pre-enforcement judicial review. However, the Court’s opinion did not address the potential due-process issues raised by the litigants.
By basing its ruling on statutory interpretation rather than on constitutional grounds, the Supreme Court limited Sackett’s potential impact on other environmental statutes. Unlike the CWA, CERCLA does expressly preclude pre-enforcement judicial review. This glaring difference between the texts of the CWA and CERCLA will likely be enough to prevent Sackett’s application to pre-enforcement judicial challenges brought in response to CERCLA compliance orders.
Whether or not CERCLA’s express preclusion is constitutional will have to be a question for another day, and Sackett in no way forecloses on the possibility of future constitutional challenges. To date, CERCLA orders have withstood constitutional challenges in some circuits. For example, in 2010 the D.C. Circuit in General Electric v. Jackson focused its analysis on General Electric’soptions in the face of a section 106 order. General Electric could either comply with the EPA’s order and sue for reimbursement of costs, or refuse compliance and wait for the EPA to sue.
However, during Sackett oral arguments, Justice Alito expressed incredulity that a government agency could have such unchecked authority in the United States. This sentiment was reiterated in his concurring opinion, wherein he stated that it is “unthinkable” that private-property owners in our nation can be denied access to the courts while potential fines quickly exceed millions of dollars. It is possible that future litigants will be emboldened by Justice Alito’s language to bring constitutional challenges to CERCLA’s provisions, which may lead to a future Supreme Court decision that will finally settle the constitutionality of CERCLA’s ban on pre-enforcement judicial review.
Keywords: litigation, energy litigation, CERCLA, CWA, EPA
— Megan Bibb, Haynes and Boone, LLP, Houston, TX
Interior Department Proposes Fracking Regulations
The Department of the Interior’s Bureau of Land Management (BLM) on Friday issued proposed regulations for the hydraulic fracturing—also called fracking—of oil and natural gas on federal and Indian lands. The proposed regulations largely follow the recommendations of the influential report issued last year by the Department of Energy’s Shale Gas Production Subcommittee. See Government Studies May Determine the Future of Fracking Regulation, Nov. 21, 2011. In a press release, Secretary Salazar stated that “it is critical that the public have full confidence that the right safety and environmental protections are in place. The proposed rule will modernize our management of well stimulation activities—including hydraulic fracturing—to make sure that fracturing operations conducted on public and Indian lands follow common-sense industry best practices.” Interior Releases Draft Rule Requiring Public Disclosure of Chemicals Used in Hydraulic Fracturing on Public and Indian Lands, May 4, 2012.
The BLM’s proposed regulations would (1) require the public disclosure of all chemicals used in fracking fluids, with an exception for trade secrets; (2) strengthen regulations related to well-bore integrity; and (3) address issues related to flowback water. In a change from the BLM’s original position, the chemicals in fracking fluids would not need to be disclosed until after drilling begins. The disclosed information is expected to be posted on a public website, possibly the FracFocus.org website already used by several states. To protect trade secrets and confidential business information, an operator could apply for an exemption from public disclosure, but the operator would be required to identify specific information and explain why it should not be publicly disclosed. If the BLM disagrees, it would be required to give the operator 10-business-days’ notice before releasing the information to the public.
The proposed regulations also seek to ensure well-bore integrity and ensure the safe handling of the water used in fracking. Before fracking occurs, operators would be required to submit cement-bond logs, perform mechanical-integrity testing, and submit a geological report on the rock surrounding the well. They would also be required to disclose specific information about the water source to be used, the type of materials (proppants) to be injected into the fractures to keep them open, the range of anticipated pressures to be used, and the estimated total volume of fluid to be used; describe the proposed handling of recovered fluids, including the estimated volume of fluid to be recovered, the proposed methods of managing the recovered fluids, and the proposed disposal method; and ensure that the facilities needed to process or contain the flowback water are available on location. Finally, operators would be required to certify in writing that they have complied with all federal, tribal, state, and local laws, including permit and notice requirements, related to fracking.
After fracking occurs, operators would be required to certify that the well-bore integrity was maintained throughout the operation, and submit a report and explanation if the actual operations deviated from the approved plan. They would also be required to report the actual volume of fluid used, the actual pressures reached, the actual fluids handled, and the volume of fluid recovered during flowback. Recovered fluids would be required to be stored in tanks or lined pits.
The proposed regulations would apply to 700 million acres of federal land and 56 million acres of Indian land. The current regulations, which are more than 30 years old, were not written to address modern fracking. Once the proposed regulations are published in the Federal Register, which is expected to occur soon, a 60-day public-comment period will begin, during which the public, governments, industry, and other stakeholders are invited to provide input. The regulations are expected to be finalized by the end of 2012.
— Jack Edwards, Ajamie LLP, Houston, TX
Petroleum-Engineering Firm Could Be Liable for Reserve Estimates
In its 2012 decision in Highland Capital Management v. Ryder Scott Co. and Chesapeake Energy Corp., the Court of Appeals for the First District of Houston reversed a summary judgment for the defendants and held that a petroleum-engineering firm could be liable under the Texas Securities Act (TSA) for providing estimates of oil-and-gas reserves to be included in an oil and gas exploration company’s Securities Exchange Commission (SEC) filings. Under this holding, the providing of “false” estimates of the oil and gas reserves or estimates prepared “with reckless disregard for the truth” could result in liability for aiding both the sellers as well as the issuers of interests in securities. Furthermore, the court held that the engineering firm’s alleged failure to follow SEC guidelines for estimating oil and gas reserves could satisfy the intent required to be an aider and abettor under the TSA.
— Donald D. Jackson and Mini Kapoor, Haynes and Boone, LLP, Houston, TX
New Chemical Disclosure Requirements Finalized
On December 13, 2011, the Texas Railroad Commission formally adopted its proposed regulations requiring disclosure of chemicals used in fracturing treatments, applicable to all wells for which the Commission issues an initial drilling permit on or after the regulations effective date, February 1, 2012. The regulations also require disclosure of other information about the fracturing treatment, including the date of treatment, volume of water and base fluid used, and other well-identifying information.
Enacted pursuant to HB 3328, these regulations will require submission of applicable fracking materials to the Commission through an online chemical disclosure registry FracFocus on or before the date a well operator submits its well completion report. The operator must identify the source of each additive used in the fracturing fluid, each chemical ingredient provided by the operator that is subject to federal disclosure requirements, and all ingredients intentionally added by the operator. Additionally, the operator must disclose to the Commission, either on FracFocus or in a separate document, the Chemical Abstracts Service (CAS) number for each chemical intentionally included in the fracturing treatment. The operator does not have to disclose chemicals not intentionally added, naturally occurring, or contained in an additive and undisclosed by the manufacturer, supplier, or service company.
The regulation also contains an exemption for disclosure of chemicals whose identity is a trade secret. An operator claims this exemption by reporting to the Commission the chemical family of the ingredient, stating that the identity and/or concentration of the ingredient are entitled to trade-secret protection, and disclosing the properties and effects of the unidentified chemical or chemicals. A landowner or adjacent landowner of the property where the wellhead is located may challenge this designation, as may the government, within 24 months of the operator’s well completion record.
Keywords: Texas, disclosure, fracking, public comment, regulation, Texas Railroad Commission
— Ben Allen and Liz Klingensmith, Haynes and Boone, LLP, Houston, TX
November 16, 2011
Pennsylvania Court Leaves Door Open to a New Definition of "Minerals" in Marcellus Shale
In September, the Superior Court of Pennsylvania issued a Jekyll-and-Hyde opinion that highlights both a potential legal landmine and the possibility for an industry-friendly body of law in Pennsylvania for Marcellus shale natural gas producers. Specifically, the decision will impact producers who are operating on land where the surface and mineral estates were severed prior to the discovery of recoverable Marcellus shale gas. In Butler v. Powers, the court acknowledged that use of the term “minerals” in mineral deeds does not normally include hydrocarbons, including Marcellus shale natural gas, unless intended otherwise. The court cited two prior Pennsylvania Supreme Court cases, Dunham v. Kirkpatrick, 101 Pa. 36 (1882) and Highland v. Commonwealth, 161 A.2d 390 (1960), which state that when a deed grants or reserves minerals without specific mention of natural gas or petroleum, a rebuttable presumption arises that such deed intended to exclude such substances. The trial court in Butler relied on the same Pennsylvania cases in dismissing the appellants’ suit seeking a declaratory judgment that a deed reserving minerals and petroleum oils included Marcellus shale natural gas. In short, absent clear and convincing evidence to the contrary, if the operative grant or reservation of the mineral estate does not specifically mention natural gas, the producers may be drilling for gas that belongs to someone else.
Fortunately for Marcellus shale producers in Pennsylvania, the Butler court left open the possibility that Marcellus shale gas may not be subject to the Dunham and Kirkpatrick rules due to its unique properties. First, unlike natural gas produced out of traditional vertical wells, which is “ferae naturae” and flows freely in subterranean pore space, Marcellus shale natural gas is trapped within the shale formation and requires hydraulic fracturing (fracking) for extraction and production.
Second, the court recognized that this distinction in flow and extraction may be legally significant due to similarities to the extraction of coalbed gas. In U.S. Steel v. Hoge, the Pennsylvania Supreme Court held that gas present within coal seams belongs to the owner of such coal. Furthermore, the extraction of coalbed gas is similar to that of shale gas, because coal seams must be fracked to produce the gas trapped within the coal. If this analysis is applied to Marcellus shale gas, the owner of the shale itself will also own the natural gas trapped therein.
Unfortunately, even if Pennsylvania applies the Hoge rule to Marcellus shale natural gas, there is still significant risk to producers, because it is not clear whether the term “mineral” includes Marcellus shale. If not, exploration and production companies may have spent billions of dollars to produce natural gas that belongs to the owner of the surface estate.
Keywords: Marcellus, shale, natural gas, fracking, Superior Court of Pennsylvania
— Austin Frost, Haynes and Boone, LLP, Houston, TX
November 14, 2011
State Department Probe May Delay Obama Administration's Keystone XL Decision
The State Department has launched an investigation into the ongoing Keystone XL pipeline permitting process. TransCanada’s proposed pipeline would transport oil extracted from Canadian tar sands in Alberta, Canada, to American Gulf Coast refineries. Specifically, the State Department inspector general will address allegations that the department allowed TransCanada to pick Cardno Entrix, which recently has had extensive business dealings with TransCanada, to perform the project’s environmental assessment. Critics say the State Department should have forced TransCanada to pick a more neutral company to perform the assessment. Additionally, the inspector general will address allegations that a State Department employee improperly supported TransCanada’s top lobbyist. Finally, the investigation will consider allegations that TransCanada hired Paul Elliott, who was a campaign advisor to Secretary of State Clinton during her bid for the presidency, to lobby for the project, thereby creating a conflict of interest.
Originally, the Obama administration was to decide if the pipeline could go forward by the end of this year; however, the investigation will likely delay that decision. Depending on the investigation’s findings, the State Department could initiate a new environmental impact study or a new study of the pipeline’s route. Such studies could delay the ultimate permitting decision by up to two years. President Obama, responding to numerous complaints from environmental groups and lawmakers from districts along the pipeline route, now says that he himself will make the ultimate decision on whether to grant the project a permit. He has not given a timetable for his decision.
Keywords: Keystone XL, Obama administration, TransCanada
—Robert Carlton, Haynes and Boone, LLP, Houston, TX
November 3, 2011
Interior Department to Release New Regulations for Hydraulic Fracturing
Over the coming months, the Department of the Interior will release new regulations pertaining to hydraulic fracturing on federal lands, affecting natural gas production on 700 million acres of public land. On October 31, Deputy Interior Secretary David Hayes, speaking before the Energy Department Advisory Board’s Shale Gas Subcommittee meeting, indicated the new regulations will focus on three areas. First, mirroring many state requirements, the regulations will require operators to disclose the chemicals they use during the fracturing process. To assuage industry fears, however, the regulations will contain provisions to protect trade secrets. Second, the regulations will extend well bore integrity standards to the hydraulic fracturing stage of well development. Finally, the regulations will increase oversight of water used and produced at the well site. Specifically, Hayes indicated the new regulations may change water management requirements to include flowback fluid during hydraulic fracturing, in addition to water produced during the development process. This would mean that companies would need to detail their plans for disposing of and recycling flowback water. Hayes also noted that the drafters are working to ensure that the measures do not duplicate state regulatory efforts. With this aim in mind, one of the ideas the drafters are considering is a certificate program, whereby operators must certify that they are in compliance with local and state standards pertaining to water management.
According to Hayes, the new regulations will be influenced by the recommendations of the Department of Energy’s Shale Gas Subcommittee. The subcommittee released a 90 day report on August 18, 2011, in which it detailed potential avenues for improving the safety and reducing the environmental impact of shale gas production. Among the recommendations contained in the report, the subcommittee focused on making shale gas production operations, including fracturing formulas, more accessible to the public. It focused on potential measures to reduce the environmental and safety risks of shale gas operations. The subcommittee also proposed the creation of a Shale Gas Industry Operation Organization to come up with and continually improve a best operating practices regime. Finally, it focused on potential research and development opportunities to improve safety and environmental performance. These recommendations will be further solidified in the subcommittee’s 180 day report, set to be released on November 18; however, these themes, as they stand, will pervade the Department of Intereior’s new regulations.
Keywords: fracturing, regulations, federal, interior, public lands, Hayes
—Liz Klingensmith and Robert Carlton, Haynes and Boone, LLP, Houston, TX
October 25, 2011
Texas Fracturing Regulations—New Chemical Disclosure Requirements
On September 9, 2011, the Texas Railroad Commission proposed regulations requiring disclosure of chemicals used in fracturing treatments. The regulations also require disclosure of other information about the fracturing treatment, including the date of treatment, volume of water and base fluid used, and other well-identifying information. They will apply to wells for which the Commission issued an initial drilling permit on or after the regulations’ effective date.
These regulations, proposed pursuant to enacted HB 3328, require submission of a Chemical Disclosure Registry to the Commission on or before the date a well operator submits its well completion report. This registry must identify the source of each additive used in the fracturing fluid, each chemical ingredient provided by the operator that is subject to federal disclosure requirements, and all ingredients intentionally added by the operator. Additionally, the operator must disclose to the Commission, either in the registry or in a separate document, the Chemical Abstracts Service (CAS) number for each chemical intentionally included in the fracturing treatment. The operator does not have to disclose chemicals not intentionally added, naturally occurring, or contained in an additive and undisclosed by the manufacturer, supplier, or service company.
The regulation contains an exemption for disclosure of chemicals where the identity is a trade secret. An operator claims this exemption by reporting to the Commission the chemical family of the ingredient, stating that the identity and/or concentration of the ingredient are entitled to trade-secret protection and disclosure of the properties and effects of the unidentified chemical or chemicals. A landowner or adjacent landowner of the property where the well-head is located may challenge this designation, as may the government, within 24 months of the operator’s well completion record.
The public comment period for the regulations closed October 11, 2011, and these regulations will probably take effect by early 2012.
Keywords: Texas, disclosure, fracking, public comment, regulation, Texas Railroad Commission
—Ben Allen and Liz Klingensmith, Haynes and Boone, LLP, Houston, TX
October 5, 2011
TRAIN May Stay New EPA Regulation of Power Plant Emissions
On September 22, 2011, the U.S. House of Representatives passed by vote of 249–169 H.R. 2401, Transparency in Regulatory Analysis of Impacts on the Nation (TRAIN). TRAIN proposes to delay, pending further committee review, the implementation of select recently proposed EPA regulations aimed at reducing airborne emissions. Specifically, TRAIN focuses upon new EPA rules directed toward regulating both emissions from individual power plants and aggregate emissions from power plants in certain states that are found to harm a neighboring state’s air quality.
TRAIN would stay the effective date of these new EPA regulations until a committee composed of a broad section of U.S. departments, including the secretary of agriculture, secretary of commerce, secretary of energy, chairman of the Federal Energy Regulatory Commission (FERC), and others is able to analyze the impact of the new EPA regulations upon industry and consumers. Such analysis would include “(1) estimates of the impacts of the such rules and actions on the global economic competitiveness of the United States, electricity prices, fuel prices, employment, and the reliability and adequacy of bulk power supply in the United States; and (2) a discussion and an assessment of the cumulative impact on consumers, small businesses, regional economies, state, local, and tribal governments, local and industry-specific labor markets, and agriculture.” TRAIN Summary as of 6/24/2011. The committee lacks authority to reject or accept the proposed regulations; any findings by the committee would merely carry persuasive authority.
Proponents of TRAIN argue these new EPA regulations have not been studied with any eye towards their economic impact on consumers and the power industry. Opponents, however, view the bill as a tactic to stall, perhaps indefinitely, the implementation of much needed air quality regulations. Casting doubt upon TRAIN’s future, the White House has already reported that “presidential advisors would recommend that [President Obama] veto the bill.”
At a minimum, with respect to the EPA’s newly proposed regulations, uncertainty abounds regarding precisely what light will appear at the end of the tunnel.
Keywords: EPA, regulation, emission, TRAIN, power plants
—Austin Elam, Haynes and Boone, LLP, Houston, TX
September 14, 2011
Feds Charge Pelican with Clean Air Act Violations
Federal prosecutors charged Pelican Refining Co., LLC (PRC) with two counts of Clean Air Act (CAA) violations and one count of obstruction of justice. PRC, headquartered in Houston, owns a 30,000 BPD refinery located in Lake Charles, Louisiana, where the charges were filed on September 6, 2011. The charges follow this July’s guilty plea of the company’s former vice president and general manager to two counts of related CAA violations. According to the plea agreement’s factual summation, many of PRC’s environmental compliance problems were attributable in part to “insufficient income from the facility’s operation.” The refinery had no environmental budget, environmental department, or environmental manager. Operators allegedly relit the refinery’s intermittently-working flare with a flare gun purchased at Wal-Mart.
The Bill of Information alleges that PRC loaded crude oil into a tank with a failed floating roof, which allowed benzene and related aromatic compounds to escape into the atmosphere in violation of PRC’s Title V permit. These aromatic compounds are classified as toxic air pollutants and are known, probable, or suspected carcinogens. The charges also allege that PRC operated the refinery without a vapor recovery system at its barge loading dock, without a proper hydrogen sulfide scrubbing system, and without a properly functioning flare, all in violation of its permit. As to the obstruction of justice count, prosecutors accuse PRC of knowingly making false entries and false statements in CAA-related documents filed with the Louisiana Department of Environmental Quality.
Keywords: Clean Air Act, Pelican, compliance, benzene
—Pierre Grosdidier, Haynes and Boone, LLP, Houston, TX
September 12, 2011
Texas: Shell Settles Air Emission Reporting Dispute with Harris County
Harris County attorney Vince Ryan announced on Tuesday that Shell Chemical, L.P., has agreed to pay $500,000 to Harris County to settle a dispute arising from allegations that it failed to notify the county of petrochemical emissions. Shell’s Deer Park refinery, located in Harris County, emitted reportable amounts of petrochemicals between April 2008 and March 2010, but only notified state authorities of the emissions.
The Texas Commission on Environmental Quality promulgates emissions reporting requirements for businesses, which are compiled by the Secretary of State in the Texas Administrative Code and available on the Texas Register's website. Although Shell initially argued that these regulations only required Shell to notify the statewide commission when it released reportable amounts of emissions, part of Shell’s settlement includes an acknowledgement that it is also required to notify the county of reportable emissions events.
An environmental attorney for Harris County indicated that the county also plans to pursue other companies that fail to notify the county of reportable emissions events.
—Ben Allen, Haynes and Boone, LLP, Houston, TX
June 24, 2011
Texas Signs Fracking Disclosure Bill Into Law
On June 17, 2011, Texas Governor Rick Perry signed the Disclosure of Composition of Hydraulic Fracturing Fluids Act H.B. 3328 into law. This legislation is the first in the nation to require public disclosure of the chemical composition of fracking fluids. The law requires disclosure of the type and rate of concentration of base fluids, additives, and chemical constituents used in fracking. Companies subject to the disclosure requirements can protect proprietary chemical formulas by seeking formal approval from the Texas Railroad Commission. Upon approval, such formulas will be protected from disclosure unless disclosure becomes necessary for medical treatment. Disclosed information will be posted on fracfocus.org, a public website. The law takes effect on September 1, 2011.
Keywords: fracking, disclosure, fracfocus, frac act
—Liz Klingensmith and Caroline Musa, Haynes and Boone, LLP, Houston, TX
May 5, 2011
BP Files Claim Against Cameron International in Deepwater Horizon Litigation
Multi-district litigation over the Deepwater Horizon blowout remains pending against BP Plc before United Stated District Judge Cal Barbier in the United States District Court for the Eastern District of Louisiana. BP blames the spill on the failure of a Cameron International Corp. manufactured blowout preventer. On April 20, 2010, the deadline for parties to file claims against one another, BP initiated a cross-claim against Cameron. That claim seeks contribution for the damages that the federal government might levy against BP. According to BP, the blowout preventer failed to meet design and manufacturing specifications. BP also alleges that Cameron acted negligently in the maintenance and repair of the equipment. Cameron has already filed cross-claims against numerous of the defendants in the case.
In March 2011, NASA contractor Det Norske Veritas issued a report as part of the federal investigation into the Deepwater Horizon incident, finding that the blowout was the result of a design flaw and not any misuse or mismanagement.
The blowout preventer did not work during the April 20, 2010, Deepwater Horizon blowout and is blamed for the three-month oil spill, the largest marine spill in the history of the petroleum industry. The federal panel investigating the cause of the rig explosion and spill, the U.S. Coast Guard-Bureau of Ocean Energy Management Regulation and Enforcement, is expected to file its final report on the incident in July 2011.
—Corey F. Wehmeyer, Cox Smith Matthews Incorporated, San Antonio
April 5, 2011
House Bill Could Make Impairment of Mineral Estates a Compensable Regulatory Taking
Texas Representative James L. Keffer has introduced new legislation that would require cities to compensate mineral owners when city regulations diminish the value of mineral estates. House Bill 3105, called “Regulatory Takings/Oil and Gas,” would make a city regulation that “damages, destroys, impairs, or prohibits development of a mineral interest” equivalent to a regulatory taking and subject to the Private Real Property Rights Preservation Act. Once subject to the Act, this would:
(1) waive sovereign immunity to suit and liability for a regulatory taking;
(2) authorize a private real property owner to bring suit to determine whether the governmental action of a city results in a taking;
(3) require a city to prepare a "takings impact assessment" prior to imposing certain regulations; and
(4) require a city to post 30-days notice of the adoption of most regulations prior to adoption.
The House Energy Committee is holding a hearing to consider HB3105 on Wednesday, April 6.
Keywords: regulatory takings, legislation, mineral estate, mineral interest, city regulation
—Megan Bibb and Liz Klingensmith, Haynes and Boone, LLP, Houston, TX
March 18, 2011
Senate Bill Seeks Required Disclosure of Chemicals in Fracking Fluid
Democratic Pennsylvania Senator Robert Casey reintroduced the Fracturing Responsibility and Awareness of Chemicals (FRAC) Act in Senate Bill S. 587 on March 15, 2011. The proposed legislation would repeal hydraulic fracturing's exemption under the federal Safe Drinking Water Act (SDWA). Under the Bush Administration, the Energy Policy Act of 2005 amended SDWA to preclude the EPA from regulating hydraulic fracturing. If enacted, SDWA's definition of "underground injection" would be made to include fluids used in the hydraulic fracturing process. Additionally, the law would require disclosure of the chemical additives in fracking fluid. Proprietary chemical formulas would not be subject to disclosure unless use of the formula is necessary for medical treatment. Disclosure of the chemical additives would be made publicly available online and to regulatory agencies. Companion legislation (H.R. 1084) was also introduced in the House of Representatives.
Keywords: S. 587, FRAC Act, fracking, Casey, disclosure
—Liz Klingensmith, Haynes and Boone, LLP, Houston, TX
March 18, 2011
Fifth Circuit Nixes Court-Ordered Deadline to Act on Drilling Permits
On March 15, the Fifth Circuit temporarily stayed a court-imposed deadline that would have required federal off-shore regulators to act on certain drilling permits in the Gulf of Mexico. The Fifth Circuit’s order came just four days before the March 19 deadline imposed by Judge Martin Feldman of the U.S. District Court for the Eastern District of Louisiana.
The Fifth Circuit’s order does not explain its reasons for staying the deadline. In requesting the stay, the administration argued that the permits at issue had yet to meet permitting requirements and that mandating immediate action would disrupt the efficient review of permit applications. Furthermore, forcing the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), the agency tasked with processing off-shore drilling permits, to take action on the handful of drilling permits at issue in the case would come at the expense of other permits that were closer to approval.
The permits at issue had been pending for four to nine months. Prior to the Deepwater Horizon oil spill, such permits were processed in approximately two weeks. In his February 17 order requiring action on the drilling permits, Judge Feldman found that, while some delays might be justified, “[d]elays of four months and more in the permitting process . . . are unreasonable, unacceptable, and unjustified by the evidence before the Court.” Judge Feldman also noted that, although there was currently no drilling moratorium in effect, “it appears that the government has considered no applications for any activities falling within the scope of the moratorium.” On February 28, BOEMRE issued its first deepwater drilling permit since the Deepwater Horizon oil spill.
Judge Feldman previously drew attention when, three months after the explosions on the Deepwater Horizon, he temporarily enjoined the Interior Department from enforcing a six-month drilling moratorium.
Keywords: moratorium, drilling permits, off shore, BOEMRE, Deepwater Horizon, drilling
—Wolf McGavran, Haynes and Boone, LLP, Houston, TX
March 18, 2011
Devon, Dallas Energy Billionaire Liable for Fraud Verdict
A Houston jury found Dallas energy billionaire Trevor Rees-Jones and Oklahoma City-based Devon Energy Corporation liable for fraud arising from the 2006 sale of Chief Holdings, LLC, a Barnett Shale oil and gas developer. D. Bobbit Noel Jr., former minority partner in Chief Holdings, alleged that Rees-Jones committed fraud and breached his fiduciary duties when he bought out Noel’s share of Chief Holdings for $6.5 million in 2004. After purchasing Noel’s 5.76 percent share, Rees-Jones sold Chief Holdings to Devon in 2006 for over $2 billion.
The jury found Rees-Jones received $369,042,890 in profits from selling Chief Holdings and awarded Noel over $116 million in damages, the amount Noel’s minority share currently would be worth. Craig Haynes, attorney for Rees-Jones, maintains that Noel signed a release of all claims against Rees-Jones and said much of the jury’s damage calculation was based on unrecoverable “consequential damages.” Haynes said the accurate damage amount is $8 million, which was the value of Noel’s share when Rees-Jones sold Chief Holdings to Devon. Rees-Jones and Devon plan to appeal the verdict.
Keywords: Rees-Jones, Devon, Bobbit, Chief Holdings, verdict, fraud, billionaire
—Jason Huebinger, Haynes and Boone, LLP, Houston, TX
March 15, 2011
Proposed Legislation Would Repeal Tax Break for Costly Natural Gas Production
Texas Democrat Representative Lon Burnam from Fort Worth introduced revenue-raising legislation, which includes a repeal of the tax break for high-cost natural gas production. If passed, the legislation would raise an estimated $2.8 billion. Representative Burnam contends that such legislation is necessary to alleviate the impact of major state budget cuts, which are required as a result of the multibillion-dollar deficit.
At this point, it appears unlikely that the legislation would pass because Republicans outnumber Democrats 101 to 49. Republican leaders—including Governor Rick Perry—have already ruled out new or increased taxes as a response to the deficit; however, Representative Burnam insists that legislators from both sides of the aisle are examining the possibility of raising taxes due to the severity of the proposed services cuts.
Despite the deficit, critics of the legislation maintain that eliminating the tax incentive would do more harm than good because it would ultimately weaken one of the strongest industries in Texas’ economy. According to James LeBas, a fiscal consultant for the Texas Oil and Gas Association, oil and gas development as been “one of the few growing segments” of the state’s economy, and “a lot of states are ready to take away our rigs and our jobs.” Industry officials posit that the 22-year-old exemption generates $4 of economic growth for every dollar invested and creates about 40,000 jobs each year. The exemption is also credited with incentivizing the development and use of costly gas extraction techniques, which have resulted in the production of hard-to-reach natural gas. Although Representative Burnam recognizes the successfulness of the exemption in promoting natural gas production, he argues that it is no longer necessary.
Keywords: tax-break, legislation, Fort Worth, natural gas, Burnam, Perry
—Megan Bibb, Haynes and Boone, LLP, Houston
March 15, 2011
BP Seeks Additional Testing on Failed Blowout Preventer
Multi-district litigation remains pending against BP PLC before District Judge Cal Barbier in the U.S. District Court for the Eastern District of Louisiana. On March 8, 2011, BP filed papers in the case, seeking access to the failed blowout preventer for additional testing. The blowout preventer did not work during the April 20, 2010, Deepwater Horizon blowout and is blamed for the three-month oil spill, the largest marine spill in the history of the petroleum industry. A joint investigation team has been supervising the testing of the blowout preventer, which began at a New Orleans NASA facility in November. Testing was halted on March 4, 2011. The initial testing, aimed at determining the cause of the blowout preventer failure, was performed by NASA contractor Det Norske Veritas. Veritas is expected to submit findings by March 20. The joint investigation team believes Veritas performed the necessary tests and that official testing is complete. However, the team invited BP to ask the court to allow its own testing.
BP’s filing seeks an order permitting access to the blowout preventer to perform additional testing that is says Veritas refused to do. BP also seeks court assistance in ordering the cooperation of Cameron, the company that manufactured the blowout preventer, and Transocean, the company responsible for maintaining it.
The federal panel investigating the cause of the rig explosion and spill, the U.S. Coast Guard-Bureau of Ocean Energy Management Regulation and Enforcement, is expected to make a preliminary statement by mid-April and file its final report on the incident in July 2011.
Keywords: BP, blowout preventer, testing, Veritas, DNV
—Corey F. Wehmeyer, Cox Smith Matthews Incorporated, San Antonio
March 1, 2011
Ensco Offshore Co., et al. v. Salazar: Court Grants Preliminary Injunction
In Ensco Offshore Co., et al. v. Salazar, Ensco, a provider of offshore oil drilling services, sued the federal government, seeking a preliminary injunction regarding five specific drilling permits in which Ensco holds a contractual stake. The lawsuit was filed in the Eastern District of Louisiana and assigned to United States District Judge Martin L. C. Feldman. Ensco’s motion for preliminary injunction asked the court to require the government to act on Ensco’s five permit applications, which had been pending for four to nine months.
On January 13, 2011, the court denied without prejudice Ensco’s motion for preliminary injunction and ordered supplemental briefing. On February 17, 2011, the court issued an order granting Ensco’s motion for preliminary injunction. In its order, the court ordered the Bureau of Ocean Energy Management, Regulation, and Enforcement (BOEMRE), which is a division of the U.S. Department of the Interior, to act on Ensco’s five pending applications within 30 days of the order and to simultaneously report to the court its compliance.
After the Deepwater Horizon explosion and catastrophic oil spill that followed, the Secretary of the Interior twice imposed a blanket moratorium on deepwater drilling in the Gulf of Mexico. For the five months during which the bans were in place, no permits were issued for deepwater drilling. Even after the secretary formally lifted the second moratorium on October 12, 2010, permits for deepwater drilling activities were not processed. The order in Ensco provides a blueprint for other energy companies to seek court relief from indefinite government delay on drilling permits.
Keywords: BOEMRE, Ensco, offshore, Feldman, injunction, moratorium
—Andrew L. Edelman, Kristen W. Kelly, and Darin L. Brooks, Beirne, Maynard, & Parsons, LLP, Houston, Texas
December 20, 2010
Court Upholds Dismissal of Fraud Claim for Manipulation of Natural Gas Prices
In Rio Grande, the plaintiffs alleged that the defendants—including energy traders and operators of pipelines and other infrastructure—monopolized natural gas trading through the use of a price index for deliveries to the Houston Ship Channel. The index at issue is published monthly in publications such as Platts Inside FERC’s Gas Market Report. Specifically, the plaintiffs alleged that the defendants exploited their market position by making “bidweek” (usually the last five days of a preceding month) sales at artificially low prices, which resulted in suppressing the index to the benefit of the defendants and the detriment of the plaintiffs and other sellers bound by index linked contracts. Plaintiffs’ original complaint asserted claims under the Sherman Act for predatory pricing, unlawful monopolization, and restraint of trade. The district court found that the plaintiffs failed to allege any predatory behavior and facts showing the extent of defendants’ market power and failed to do more than simply assert collusive behavior. The court dismissed the plaintiffs’ claims pursuant to Rule 12(b)(6) and granted plaintiffs 30 days to amend.
Plaintiffs’ amended complaint aimed to cure its Sherman Act monopolization claim and asserted an additional claim of common law fraud. This time, the plaintiffs alleged that the defendants “knowingly, intentionally and recklessly misrepresented and omitted facts by reporting trade data . . . to Platts that: (i) intentionally misstated the true market value of gas sold at the Houston Ship Channel; and (ii) failed to disclose that the gas prices that they reported did not represent, and were not intended to represent, the true market forces of supply and demand.” Plaintiffs did not allege that the defendants misreported their sales but that the data they supplied was misleading because of market manipulation.
The district court denied plaintiffs’ motion to amend its complaint for futility, holding that the amended complaint still failed to state a claim under Rule 12(b)6. The court held that the truthful reporting of sales did not constitute a misrepresentation, and plaintiffs failed to plead facts illustrating the defendants’ intent to induce reliance by failing to disclose any market manipulation. Plaintiffs appealed, challenging the dismissal of the fraud claim only.
—Matthew A. Moeller, Plauche Maselli Parkerson, New Orleans, LA
December 6, 2010
New York Temporarily Bans Fracking
On November 29, 2010, the New York State Assembly voted 93 to 43 on bill number 11443-B to temporarily ban the issuance of new drilling permits for wells that utilize fracking in "low permeability natural gas reservoirs, such as the Marcellus and Utica shale formations." New York's temporary ban represents the first such legislative action against fracking of its kind, and it is anticipated that New York Governor David Paterson will sign the bill into law within the 10-day period required by New York law. Upon approval by the governor, the bill will take effect immediately. However, the bill automatically expires on May 15, 2011, providing some consolation to gas producers who are anxious about a changing regulatory environment. Additionally, the bill does not affect the renewal of drilling permits for existing wells that utilize fracking.
The ban comes in the midst of an ongoing two-year study of fracking by the Environmental Protection Agency (EPA) in which the EPA is attempting to assess fracking's potential impact on drinking water, human health, and the environment. As part of that study, the EPA recently completed a round of public hearings and received responses from eight fracking companies to voluntary requests for information. The temporary ban references ongoing investigations in New York as well, stating that the "purpose of such suspension shall be to afford the states and its residents the opportunity to continue the review and analysis of the effects of hydraulic fracturing on water and air quality, environmental safety, and public health."
Keywords: hydraulic fracturing, fracking, New York
—Michael Raab, Haynes and Boone, LLP, Houston, TX
November 12, 2010
A "Crude" Opinion for Plaintiffs' Lawyers in Ecuadorian Lawsuit Against Chevron
In a 54-page opinion issued on November 4, 2010, Judge Lewis Kaplan denied plaintiffs’ motion to quash Chevron Corporation’s subpoena directing plaintiffs’ attorney advisor, Steven Donziger, to produce documents and to testify.
Plaintiffs brought the underlying lawsuit in Ecuador seeking to recover $113 billion against Chevron for alleged environmental pollution. In response, Chevron sought discovery in the United States to show that it has been denied due process due to plaintiffs’ fraud and improper collusion with the Ecuadorian government—which also has financial and political interests in a successful plaintiffs’ outcome. The discovery sought focuses, in part, on Chevron’s attempt to show that the "global assessment" of a supposedly neutral independent damages expert and the evidence submitted in Ecuador have been fraudulent.
At the center of the controversy is Donziger, a New York attorney and Harvard Law School graduate who "has been extremely active in support of the [plaintiffs]." Donziger efforts include lobbying the Ecuadorian and United States governments, raising money to support litigation efforts, organizing a media campaign, and soliciting and interacting with celebrity supporters. Donziger’s role in the litigation was captured on film in Crude, a documentary of the Ecuadorian lawsuit against Chevron. The publicly released version of Crude focused in large part on Donziger’s words and activities and depicted plaintiffs’ in a negative light.
Crude’s release prompted Chevron to seek production of outtakes that did not appear in the documentary’s final cut. The court held in a prior opinion that Chevron was entitled to the footage sought in discovery. Now, more than 85 percent of the outtakes have been produced and show disturbing misconduct by Donziger and plaintiffs’ counsel.
Based primarily on his review of the outtakes from Crude, Judge Kaplan found that there is substantial evidence to support Chevron’s fraud claims, because (1) the court-appointed damages expert was chosen as a result of Plaintiffs’ ex parte contacts with the Ecuadorian courts; (2) plaintiffs’ consultants wrote at least part of the court-appointed expert’s damages report; and (3) the court-appointed expert presented “the global assessment” report as his independent work.
Judge Kaplan rejected Donziger’s claims that Chevron’s subpoena violated the attorney-client privilege and the work product doctrine because Donziger is not licensed to practice law in Ecuador and he acted primarily in capacities as lobbyist, public relations consultant, media representative, and political organizer—not as an attorney. Judge Kaplan ordered Donziger to comply with Chevron’s subpoena. However, his order left open the possibility that privilege claims could be asserted during the deposition in response to specific questions and for the production of certain documents. The court appointed a special master to preside at the deposition to deal with any claims of privilege and instructed Donziger to follow the federal and local rules to assert his privilege claims on a document-by-document basis. Based on the these instructions, the court said it would resolve whatever privilege claims Donziger asserted.
Keywords: Chevron, Donziger, Crude, Ecuador
—Heidi Thomas Bundren, Haynes and Boone, LLP
October 21, 2010
No Violation of Clean Air Act with Compliance to State Implementation Plan
The U.S. Court of Appeals for the Seventh Circuit reversed a jury’s finding that Duke Energy’s predecessor, Cinergy Corp., violated the Clean Air Act by making modifications to a coal-fired energy plant in Indiana that increased annual pollution without a federal permit. Cinergy was purchased by Duke Energy in 2006. United States v. Cinergy Corp., 09-3344, 09-3350, 09-3351 (7th Cir. Oct. 12, 2010).
In the U.S. District Court for the Southern District of Indiana, Cinergy argued that the plant modifications did not require a permit because they did not increase the hourly rate of emissions for nitrogen oxide and sulfur dioxide, even if they increased the plant’s annual emissions of those pollutants. Cinergy asserted that when the plants were modified, this hourly emissions rate interpretation was included in Indiana’s state implementation plan (SIP) for the Clean Air Act, which the Environmental Protection Agency (EPA) approved. EPA acknowledged that it approved the plan but also noted that Indiana had agreed to update its definitions to conform to the annual-based emissions standard subsequently adopted by EPA. Based on its compliance with the SIP hourly emissions standard, Cinergy argued that it did not need a permit for the plant modifications.
U.S. District Judge Larry McKinney rejected this interpretation and held that without the required permit, Cinergy was liable for increased pollution caused by the modifications. The case went to a jury, which found that modifications undertaken between 1989 and 1992 were likely to increase the plant’s annual emissions of sulfur dioxide and nitrogen oxide, and, therefore, the company should have sought a permit for these modifications. The district court ordered Cinergy to retire certain coal-fired boiler generating units by September 2009.
However, a three-judge panel of the Seventh Circuit reversed the jury verdict and ruled that the modifications complied with Indiana’s SIP, which was approved by EPA in 1982, and that SIP was in effect when Cinergy began the modifications on the plants in 1989. Therefore, the plant did not need a permit for the modifications that increased the annual emissions of sulfur dioxide. The court stated that said the Agency "should have disapproved" Indiana’s SIP but chose to approve the SIP instead. Writing for the panel, Circuit Judge Richard Posner stated that "[t]he Clean Air Act does not authorize the imposition of sanctions for conduct that complies with a State Implementation Plan that the EPA has approved. . . . The blunder was unfortunate, but the agency must live with it." The court also reversed Cinergy’s liability for nitrogen oxide emissions because it was based on EPA expert witness testimony that should not have been admitted at trial.
Keywords: Clean Air Act, Cinergy, State Implementation Plan, SIP, EPA
—Linda Tsang, Beveridge & Diamond PC, Washington, D.C.
October 15, 2010
Stuxnet Malware Targets Energy Infrastucture SCADA Systems
A sophisticated computer worm has been discovered that was designed to specifically attack certain Supervisory Control and Data Acquisition (SCADA) systems called “Stuxnet.” SCADA systems are designed to coordinate industrial processes such power generation and infrastructure such as oil and gas pipelines and power and water distribution.
The Stuxnet worm has been reported as being configured to attack a very particular SCADA configuration, indicating it may have been created to target a specific facility or facilities. It was designed to infect the Programmable Logic Control (PLC) component and inject particular blocks of data that are used to manage critical processes that operate at high speeds or under high pressure. Given the complexity of the worm, experts have opined that it was likely created by a well-funded private group or government.
The worm was discovered on infected computers in Iran. Experts have speculated that it was designed to disable certain nuclear facilities in Iran. A study of the spread of Stuxnet by U.S. technology company Symantec shows that it has spread to several other countries, including the United States. The European Union’s cybersecurity agency, ENISA (European Network and Information Security Agency) has described Stuxnet as a “new class and dimension of malware” that represents a “paradigm shift.” The United States’ Department of Homeland Security has issued a handful of advisories about Stutnex since last July through ICS-CERT (Industrial Control System-Cyber Emergency Response Team), but some critics complain the United States’ response has been insufficient.
— Sean Farrell, Haynes and Boone LLP, San Antonio, Texas
October 15, 2010
FERC Issues Revised Statement on Penalty Guidelines
On September 17, 2010, the Federal Energy Regulatory Commission (FERC or Commission) issued a Revised Policy Statement on Penalty Guidelines to address comments FERC received in response to its previously-released Policy Statement on Penalty Guidelines. The modified Penalty Guidelines are attached to the Revised Policy Statement.
The Revised Statement on Penalty Guidelines (Revised Statement) bases penalties on factors consistent with FERC's policy statements on enforcement and assigns specific weightings to each factor. The Penalty Guidelines are still generally modeled on the United States Sentencing Guidelines, but there are differences between the new Revised Statement and the Sentencing Guidelines. A key difference is that the revised Penalty Guidelines do not restrict FERC's discretion to make individual assessments based on the facts specific to a given case or to close investigations or self-reports without sanctions.
The Revised Statement will apply to violations of Reliability Standards only in FERC Part 1b investigations and enforcement actions, and do not apply to reviews of the North American Electric Reliability Corporation's (NERC's) Notices of Penalty. The Revised Statement on Penalty Guidelines reduces the base violation level for reliability violations from 16 to 6 (FERC penalties are assigned a violation level that is adjusted based on various factors to determine the base penalty amount unless it is exceeded by the pecuniary gain to the offender or the pecuniary loss caused by the violation) and increases the risk of increased penalties based on the risk of and degree of potential harm for reliability violations.
The Revised Statement further clarifies that it will use the quantity of load lost (in MWh) as a result of a market participant's violation of a NERC Reliability Standard as one measure of the seriousness of the violation, but acknowledges that in some circumstances load shedding may be necessary to comply with the Reliability Standards, and would not result in a penalty. The Revised Statement modifies the Penalty Guidelines provision on "compliance credits," which reduces a base violation level in recognition of effective compliance programs such that it allows for partial compliance credit for effective but imperfect compliance programs and eliminates compliance credit when certain personnel participated in, condoned, or were willfully ignorant of a violation. The Revised Statement also allows for unbundling penalty mitigation credits for self-reports, cooperation, avoidance of trial-type hearings, and acceptance of responsibility.
— Sean Farrell, Haynes and Boone LLP, San Antonio, Texas
Algae Used to Scrub CO2 from Coal Plant
IRecently, European energy company Vattenfall installed a greenhouse next to a small coal plant in Senftenberg, Germany, with the hopes of cultivating algae that will consume the coal plant’s carbon dioxide (CO2) emissions. The project is still in its early stages, and it is unclear what impact other gases in coal plant emissions may have on the algae’s ability to grow. Vattenfall intends to continue the experiment until October 2011, and will publish its initial results.
Algae absorbs CO2 as part of its life cycle, and is also capable of absorbing SOx and NOx, two compounds that cause acid rain. The algae produced with CO2 can be used as an ingredient in animal feed, to produce industrial grease, or as a biofuel feedstock.
Vattenfall’s use of algae to clean coal plant emissions is not the first of its kind. Different groups have been trying to develop techniques for using algae to “sponge up” the CO2 in industrial exhaust. In 2006, the New York State Energy Research Authority and NRG Energy began testing of a system using algae to consume a power plant’s CO2 emissions. In 2007, two Australian firms, Linc Energy and Bio Clean Coal initiated a similar effort. In 2008, a project at the Massachusetts Institute of Technology found that diverting CO2 through water populated by algae reduced emissions by as much as 82 percent. In 2009, researchers at Indiana University announced they were studying the effects of algae on carbon dioxide from coal plants. Also in 2009, Arizona Public Service (the largest electricity provider in the state) secured $70.5 million in stimulus funds to expand their effort to create biofuel from algae grown using CO2 from a coal plant.
— Sean Farrell, Haynes and Boone LLP, San Antonio, Texas
Casing Failure in Four Wells Found to Be a Single Occurrence for Insurance Coverage Purposes
In 2006, Maverick Tube Corporation (Maverick) manufactured defective well casing, which was sold to Dominion Exploration and Production Co. (Dominion) through 11 separate sales. The well casing failed in four separate wells, forcing Dominion to plug and abandon the wells and drill replacement wells. After settling the matter with Dominion, Maverick filed a claim with its insurance carrier, Westchester Surplus Lines Insurance Company (Westchester). Westchester denied coverage and filed a declaratory judgment action seeking a ruling that Dominion's claims did not involve an "occurrence" under the relevant policies. The Fifth Circuit Court of Appeals reversed the lower court's decision and found that the casing failure did constitute an "occurrence" under Maverick's insurance policies. On remand, Westchester argued that the 11 separate sales of defective casing were separate occurrences each subject to Maverick's self-insured retention. Maverick contended that the failures constituted one occurrence, stemming from the defective manufacturing of the casing. On June 28, 2010, the United States District Court for the Southern District of Texas, with Justice Lee Rosenthal sitting, held that the four well failures constituted one occurrence under Maverick's insurance policies. Westchester Surplus L. Ins. Co. v. Maverick Tube Corp., No. H-07-540, 2010 WL 26335623 (S.D. Tex. 6-28-2010).
In July and August 2006, Maverick sold more than 1,300 pieces of a specific type of casing to its distributor to be shipped to Dominion for use and operation in multiple gas wells. There were 11 separate sales of this casing to Dominion. During a two-week period in September 2006, Dominion experienced failure in four separate gas wells, all containing the particular casing manufactured by Maverick. In November 2006, Dominion sent a demand to Maverick asserting that the casing failure fell within Maverick's published warranty policy. After an investigation, Maverick concluded that the failure was due to a manufacturing defect at Maverick's Columbia processing facility and settled with Dominion. Maverick then filed a claim with Westchester, seeking reimbursement of the settlement amount less its self-insured retention and original cost of the casing. Westchester denied Maverick's claim, concluding that Dominion appeared to have a valid breach of contract and warranty claim but no valid negligence claim that would be considered an occurrence under the policy.
— Matthew McGowen, Patton Boggs LLP, Dallas, Texas
Fifth Circuit Denies Appeal for Injunctive Relief for Constructing Compressor Stations
The United States Court of Appeal for the Fifth Circuit recently denied Texas Mid Stream Gas Services, LLC's (TMGS) appeal for injunctive relief regarding its plans to construct a natural gas pipeline and compression station in Grand Prairie, Texas. Texas Midstream Gas Services, LLC. v. City of Grand Prairie, et al., No. 08-1120, 2010 WL 2168643 (5th Cir. 6/01/10). TMGS announced its plans in 2007. Concerned by the possibility of a compressor station within the city limits, the Grand Prairie City Council amended Section 10 of the Unified Development Code on July 1, 2008, to cover natural gas compressor stations. Section 10 required that the station comply with setback rules, have an eight-foot security fence, enclose equipment and structures within a building, confirm to certain aesthetic standards, and have paved means of vehicular access.
TMGS filed suit against Grand Prairie and certain city officials for declaratory and injunctive relief regarding Section 10. TMGS argued that the requirement impinged on its state conferred eminent domain powers. However, the district court held that the setback requirement was lawful. TMGS filed an interlocutory appeal, challenging the district court's failure to enjoin the setback
Supreme Court Approves Massachusetts Wind Project
The Hoosac Wind Project in western Massachusetts has been tied up in lengthy litigation, an event not uncommon for wind projects in Massachusetts. But on July 6, 2010, the Massachusetts Supreme Judicial Court issued a ruling that would finally allow the project to begin. And newly passed legislation may provide a streamlined framework for approval of future wind projects in Massachusetts.
In 2003, New England Wind LLC proposed the Hoosac Wind project, a 20-turbine, 30-megawatt, project on a ridge in Berkshire County, Massachusetts. The anticipated cost of the project was approximately $100 million, and proponents of the project claimed that it would be able to power more than 10,000 homes. But the project was met with resistance by several citizen groups, who filed a lawsuit based on wetland regulation to block the project. Both the Superior Court and the Supreme Judicial Court upheld the Massachusetts Department of Environmental Protection's decision to allow the project, but the permitting and appeal process delayed the project for more than six years.
Lengthy litigation, which has affected approximately one-third of the proposed Massachusetts wind projects, is likely a major motivating factor behind the bills recently passed by the Massachusetts legislature. On July 14, 2010, the Massachusetts House of Representatives passed the Wind Energy Siting Reform Act. The bill allows creation of wind energy permitting boards to determine if wind projects should be authorized, removing the permitting power from the municipal bodies, such as planning and zoning boards, which currently have that power. The bill also eliminates some appeals that are allowed under current law. The Senate passed a similar bill earlier this year, and now the legislators must complete a compromised version. Supporters of this legislation claim that it will help the environment by making wind projects more feasible while opponents believe that it will consolidate too much power with the state and override local control and the people's traditional right of appeal.
— Matthew McGowen, Patton Boggs LLP, Dallas, Texas
Outer Continental Shelf Oil and Gas Development Plan
On March 31, 2010, President Obama announced that his administration would allow new offshore drilling on selected portions of the Outer Continental Shelf (OCS). Congressional and presidential moratoria prevented offshore oil and gas development on much of the OCS since 1981. In 2008, President Bush lifted the executive order banning offshore drilling, and Congress let its moratorium expire. President Obama announced that he will not reinstate a ban covering the Atlantic Coast south of New Jersey or the Chukchi and Beaufort Seas north of Alaska. The Obama administration stated that its strategy is to expand oil and gas production on the OCS while protecting fisheries, tourism, and places off our coast that are too special to drill.
The president's plan will ban oil and gas exploration off of the Atlantic Coast from New Jersey north and the Pacific Coast from the Mexican border to the Canadian border. Exploration on portions of the eastern Gulf of Mexico and Florida coast will also be banned as will exploration of Alaska's Bristol Bay. Despite the president's announcement that he will not reinstate the ban on offshore drilling in the Chukchi and Beaufort Seas, the president's plan cancels several lease sales that had been planned under the Bush administration. Further, many of the areas not banned under the president's plan will not be open for exploration and development until after the government conducts detailed studies regarding geology and the impact of drilling on the environment and military activities.
On April 1, 2010, in response to President Obama's announcement, Rep. Edward Markey (D-Mass.) announced that he plans to reintroduce legislation that will penalize companies that let leased oil drilling rights lay dormant. It has been reported that Rep. Markey's proposed legislation would place an escalating fee on drilling rigs not being used by companies to incentivize companies to drill the offshore areas they already have leased before acquiring new leases.
— Sean Farrell, San Antonio, Texas
FERC Order Signals Approval of Lower Penalties in Reliability Standards Violations
On November 13, 2009, the Federal Energy Regulatory Commission (FERC) issued its Order on Omnibus Notice of Penalty Filing (the Omnibus Order). The Omnibus Order addressed 564 penalties proposed by the North American Electric Reliability Corporation (NERC). NERC filed the 564 penalties with FERC in NERC's capacity as the Electric Reliability Organization certified by FERC in 2007 to create and enforce mandatory federal reliability standards pursuant to the 2005 Energy Policy Act.
The 564 penalties applied to 140 different entities nationwide, but 541 of the 564 penalties were proposed at zero dollars ($0). The remaining 23 proposed penalties totaled $91,000, and were assessed against eight entities registered with NERC.
The Omnibus Order noted that NERC had asserted that the violations were discovered before FERC set forth its expectation for the development of records in Notices of Penalty.[3] NERC had conceded that the available records did not meet FERC's later-imposed standards but that no significant reliability benefit would be gained by pursuing the development of a more complete record. NERC averred that the possible violations had all been addressed by mitigation plans and did not pose a substantial risk to the Bulk Power System. NERC asked FERC to close these older and relatively minor cases to allow it and the regional entities[4] to concentrate on more significant violations.
— Sean Farrell, San Antonio, Texas
DARPA Discovers Method to Derive Oil from Algae for $2 per Gallon
The Defense Advanced Research Projects Agency (DARPA), the U.S. governmental agency that created the Internet and stealth fighters, has successfully developed a method to extract oil from algal ponds at a cost of $2 per gallon. [See Dr. Richard Van Atta, “Fifty Years of Innovation and Discovery” and Suzanne Goldenberg, “Algae to Solve the Pentagon’s Jet Fuel Problem,” Guardian.co.uk, Feb. 13, 2010.] This is a significant achievement given that a year ago, it was reported that DARPA was able to produce oil from algae at a cost of $6-7 per gallon. [See William Matthews, “From Algae to JP-8: Pentagon’s DARPA Funds Efforts to Make a Green Jet Fuel,” DefenseNews, Jan. 5, 2009 and Michael Hoven, “DARPA: Biofuel from Algae Could Cost Only $1 Per Gallon,” heatingoil.com, Feb. 15, 2010.]
DAPRA has been investigating the potential use of algae as a fuel-stock in its Biofuels: Cellulosic and Algal Feedstocks Program, which seeks to enable the efficient and economical production of military-grade jet fuel (JP-8) from agricultural and aquacultural products that are oil rich but not competitive with food supplies. [DARPA Military Biofuels Factsheet (Apr. 2009).] Algae meets these requirements and has other potential benefits such as its consumption of carbon dioxide as part of its growth process, and its ability to reproduce quickly in brackish or even polluted water. Algae oil has been successfully used as a fuel-stock for conventional jets. [See Katie Howell, “Is Algae the Biofuel of the Future?” ScientificAmerican.com, Apr. 28, 2009] DARPA's effort is in response to a congressional directive to the Department of Defense to reduce its reliance on foreign oil imports. Secretary of Defense Robert Gates has observed that the Department of Defense spent $12.6 billion on fuel in 2007, and estimated that it is "probably the largest single user of petroleum products in the world."
DARPA's ultimate goal is to facilitate mass-production of JP-8 at a cost of less than $3 per gallon at a production rate of 50 million gallons per year. DARPA's recent oil-extraction was achieved as part of phase one of the program, which seeks to demonstrate algae triglyceride production (a precursor to JP-8) at a projected cost of $2 per gallon. In the next phase, DARPA's contractors (General Atomics and Science Applications International Corp.) will attempt to demonstrate production of algae triglyceride at $1 per gallon and develop and demonstrate an affordable process for converting the algae triglyceride into biofuel.
— Sean Farrell, San Antonio, Texas
Council on Environmental Quality Proposes Modernization of National Environmental Policy Act
On February 18, 2010, the White House Council on Environmental Quality (CEQ) proposed steps to "modernize and reinvigorate" the National Environmental Policy Act (NEPA). NEPA, enacted in 1970, mandates that federal agencies consider the environmental impacts of their proposed actions and requires that the benefits and risks associated with proposed actions be assessed and publicly disclosed. Specifically, CEQ issued draft guidance for public comment on (a) when and how Federal agencies must consider greenhouse gas emissions and climate change in their proposed actions; (b) clarifying appropriateness of "Findings of No Significant Impact" and specifying when there is a need to monitor environmental mitigation commitments; (c) clarifying use of categorical exclusions; and (d) enhanced public tools for reporting on NEPA activities. These measures are designed to assist federal agencies to meet the goals of NEPA, enhance the quality of public involvement in governmental decisions relating to the environment, increase transparency, and ease implementation. The draft guidance is significant in that it will affect permitting an infrastructure by influencing the conditions under which federal agencies issue permits and approvals.
The most anticipated item is the draft guidance on consideration of the effects of climate change and greenhouse gas emissions. This is intended to help explain how federal government agencies should analyze the environmental effects of greenhouse gas when they describe the environmental effects of a proposed agency action. CEQ proposes that the NEPA process should incorporate consideration of both the impact of an agency action on the environment, greenhouse gas emissions, and climate change. Specifically, the guidance recommends that federal agencies consider climate change when the proposed action would lead to the release of 25,000 or more tons of greenhouse gases. The guidance affirms the requirements of Section 102 of NEPA and the CEQ Regulation for Implementing the Procedural Provisions of NEPA, 40 C.F.R. parts 1500-1508, and their applicability to greenhouse gas and climate change impacts.
The public comment period is 45 days for the revised draft guidance clarifying the use of categorical exclusion and is 90 days for the draft guidance on consideration of greenhouse gases as well as the draft guidance clarifying appropriateness of "Findings of No Significant Impact" and specifying when there is a need to monitor environmental mitigation commitments.
— Kristen W. Kelly and Darin L. Brooks Beirne, Houston, Texas
Settlement Reached on Wind Farm Project Affecting Endangered Indiana Bats
On January 26, 2010, the U.S. District Court for the District of Maryland approved a settlement agreement between Beech Ridge Energy LLC (Beech Ridge), an affiliate of Invenergy LLC, and certain environmental groups, which allows the Beech Ridge Wind Energy project, a wind farm project, in Greenbrier County, West Virginia, to move forward on a smaller scale.
In June 2009, environmental group Animal Welfare Institute and Mountain Communities for Responsible Energy (MCRE) sought a preliminary injunction to halt the wind farm project while the court determined whether the project was harmful to the Indiana bat, an endangered species under the Endangered Species Act (ESA). In December 2009, the U.S. District Court for the District of Maryland ruled that the wind farm project would imminently harm, kill, or wound the endangered Indiana bats during the spring, summer, and fall, in violation of the ESA. This was the first federal court ruling in the country to find a wind power project in violation of federal environmental law. The court ordered Beech Ridge to temporarily halt construction of the project. Beech Ridge appealed.
In reaching a settlement with the environmental groups, Beech Ridge has reduced the number of wind turbines from 122 turbines to 100 turbines and has agreed to an extended construction timeline. Under the settlement agreement, Beech Ridge may immediately construct 67 turbines (enough to create 100 megawatts of power) but must restrict the wind harvest to certain seasons when the Indiana bats are hibernating and times of day when the bats are not active. Pending the receipt of an incidental take permit from the U.S. Fish and Wildlife Service, Beech Ridge will be allowed to construct an additional 33 turbines and operate the facility at all hours year round. The first 67 turbines should be operational before the end of the year.
The Animal Welfare Institute, MCRE, and local residents have agreed not to challenge the project again in state or federal court, and Beech Ridge has dropped its appeal.
— Linda Tsang, Washington D.C.
API Files Suit to Enjoin Enforcement of Renewable Fuels Blending Act of 2009
The American Petroleum Institute (API) filed suit on December 18, 2009, in the U.S. District Court for the Middle District of Tennessee (Am. Petroleum Inst. v. Givens, 3:09-cv-01195 (M.D. Tenn. Dec. 18, 2009)), seeking an injunction blocking enforcement of the Tennessee Renewable Fuels Blending Act of 2009 (the Act). TENN. CODE ANN. § 47-25-2001 et seq.
The Act was signed into law by Governor Bredesen on June 25, 2009, and went into effect on January 1, 2010. The Act requires refiners and other petroleum fuel producers and suppliers in the state to make and sell unblended gasoline and diesel to wholesalers. In addition, the unblended fuel must be suitable for blending with biofuels. The Act also prevents contracts between a wholesaler and a refiner or fuel supplier from restricting the wholesaler's ability to blend petroleum products with ethanol or biodiesel. According to a fiscal analysis conducted by the Tennessee legislature, in 2008 major oil company suppliers began preventing Tennessee businesses from blending ethanol and instead sold only pre-blended products, effectively shifting income and profits away from certain Tennessee petroleum wholesalers to out-of-state suppliers.
In its lawsuit, the API claims that the Act is preempted by the federal Renewable Fuel Standard (RFS), the Lanham Act, and the Petroleum Marketing Practices Act. The RFS allows refiners to choose whether and how to blend gasoline or diesel with renewable fuels. The Lanham Act grants trademark holders the right to exclude others from using their trademark. The Petroleum Marketing Practices Act contains a preemption provision that voids any state law that narrows the grounds for termination or nonrenewal of a petroleum marketing franchise agreement.
The API also argues that the Act violates the Commerce Clause of the U.S. Constitution because it "discriminates against, and impermissibly burdens interstate commerce by favoring local distributors and retailers at the expense of out-of-state refiners."
— Linda Tsang, Washington D.C.
Massachusetts Seeks to Make Solar Power Economically Feasible with Ambitious Solar Power Initiative
Massachusetts is placing a high priority on making solar power a viable alternative to non-renewable energy. Governor Deval Patrick's solar power initiative provides the people and businesses strong incentives to become solar power operators. These incentives include subsidies, rebates, and, in the near future, an option to sell surplus solar-generated energy. The initiative aspires to see 250 megawatts of solar-generating capacity in place by 2017.
On December 14, 2007, Governor Patrick introduced Commonwealth Solar, a program earmarking $68 million in rebates for the installation of solar panels. The program appeared more ambitious than initially contemplated, spending all of the funding in the first 22 months instead of the slated three to four years. Commonwealth Solar exceeded expectations from a developmental standpoint, however. The initiative funded 208 commercial solar projects, creating 10.3 megawatts worth of solar capacity, and will subsidize over 12,000 solar projects by the time all the applications are processed.
— Liz Klingensmith and Ben Allen, Houston, TX
Department of Energy Announces $3.4 Billion in Grants to Develop Nation's "Smart Grid"
On October 27, 2009, the U.S. Department of Energy announced the recipients of $3.4 billion in federal grants for smart-grid projects throughout the nation. The grants, funded under the 2009 Stimulus Act, will be matched by industry investment for a total public-private investment of $8.1 billion. The funds will support approximately 100 projects in 45 different states and are intended to "spur the nation's transition to a smarter, stronger, more efficient, and reliable electric system." Press Release, The White House Office of the Press Secretary, President Obama Announces $3.4 Billion Investment to Spur Transition to Smart Energy Grid (Oct. 27, 2009).
While the overarching goal of the grants is to modernize the country's energy distribution systems, there are a variety of projects that fall under the category of smart-grid projects. These include the installation of digital thermostats, digital in-home energy management displays, and advanced transformers and load management devices. However, the most common type of project is the installation of approximately 18 million electrical meters, known as smart meters, which have the ability to identify electricity consumption in more detail and transmit this information electronically back to the utility.
— Kris Kavanaugh, Birmingham, Alabama
FTC Issues Final Rule Prohibiting Petroleum Market Manipulation
In a 2-1 vote on August 6, 2009, the Federal Trade Commission (FTC) issued a final rule aimed at prohibiting fraudulent and deceitful manipulations in petroleum markets. 6 C.F.R. § 317 (2009) The rule covers the wholesale purchase and sale of crude oil, gasoline, and petroleum distillates, and prohibits persons from directly or indirectly (1) knowingly engaging in acts that would operate as a fraud or deceit upon any other person (including making untrue statements of material facts), or (2) intentionally failing to state a material fact that under the circumstances would render the person's statement misleading (provided the omission distorts or is likely to distort market condition). Examples of targeted conduct include false public announcements of planned pricing decisions and false statistical reporting. New FTC Rule Prohibits Petroleum Market Manipulation, Federal Trade Commission.
Violations of the rule carry stiff civil penalties of up to $1 million per violation, per day, in addition to any other relief available to the Commission under the FTC Act. This stands in contrast to the $11,000 per violation penalty under the FTC Act for other forms of unfair or deceptive acts. Following announcement of the rule's issuance, Chairman Jon Leibowitz promised: "We will police the oil markets-and if we find companies that are manipulating the markets, we will go after them."[3]
— Corey F. Wehmeyer, San Antonio, Texas
The American Clean Energy and Security Act of 2009
ACES was narrowly approved on June 29, 2009, in the House Representatives by a vote of 219 to 212, and if the voting pattern in the House is any predictor, odds are in favor of another highly contested battle in the Senate. The text of ACES is organized in four parts: clean energy, energy efficiency, global warming, and transitioning.
Proponents of ACES say that the clean energy part of the act promotes renewable sources of energy and carbon capture and sequestration technologies, low-carbon transportation fuels, clean electric vehicles, and the smart grid and electricity transmission. Energy efficiency is designed to influence all sectors of the economy, including buildings, appliances, transportation, and industry. Global warming places limits on the emissions of heat-trapping pollutants. ACES advocates say that the transitioning part of ACES protects U.S. consumers and industry and promotes green jobs during the transition to a clean energy economy.
— Benjamin L. Bosell, San Antonio, Texas
Interior Secretary Cancels Utah Oil and Gas Leases after Judge Grants TRO in Favor of Environmental Groups
On February 4, 2009, U.S. Department of the Interior Secretary Ken Salazar canceled the sale of oil and gas leases on 77 parcels of federal land in Utah, following U.S. District Judge for the District of Columbia Ricardo M. Urbina's issuance of a temporary restraining order (TRO), which postponed the final sale transactions and paved the way for Interior to withdraw them. The TRO was issued in the context of pending litigation brought by several environmental groups (Plaintiffs) against Interior's Assistant Secretary for Lands and Minerals Management and the Deputy State Director of the Bureau of Land Management's Utah Office (BLM) (collectively Interior Defendants), as well as Utah state entities and purchasers of the leases which later intervened in the suit (Producers). Southern Utah Wilderness Alliance, et al. v. Stephen Allred, et al., No. 1:08-CV-02187-RMU (D. D.C. filed Dec. 17, 2008).
The Plaintiffs' Complaint seeks declaratory and injunctive relief, citing concerns about oil and gas development on the federal lands harming air and water quality and natural quiet in several alleged wilderness areas, including the Arches National Park, Canyonlands National Park, Desolation Canyon and Dinosaur National Monument and alleges the BLM failed to follow proper procedures in identifying lands appropriate for oil and gas development in violation of the Federal Land Policy and Management Act (FLPMA), the National Environmental Policy Act ("NEPA"), the National Historic Preservation Act (NHPA) and Interior Secretary Order No. 3226, which requires the consideration of climate change in administrative decisions (the lawsuit). The leases, worth an estimated $6 million, were sold this past December by the BLM during its quarterly oil and gas lease sale (required under the Mineral Leasing Act, as amended by the Federal Onshore Oil and Gas Leasing Reform Act of 1987). 30 U.S.C. § 226(b)(1)(A) (2008). In rejecting the sale of the contested parcels, Salazar acknowledged the need to develop the nation's oil and gas supplies in a responsible way, though the move was criticized by some as limiting economic development of the West.
Obama-Biden Comprehensive New Energy for America Plan and the "Green Dream Team"
As Barack Obama was sworn in as the 44th US President on January 20, his administration announced the Obama-Biden Comprehensive New Energy For America plan. The plan is aimed at the primary objectives of (1) ending our dependence on foreign oil, (2) addressing global climate change, (3) investing in alternative and renewable energy, and (4) creating millions of new jobs. These objectives are all intertwined, with the common denominator being our nation's reliance on fossil fuels for energy.
— Paul Dickerson and Rochelle Seade, Haynes and Boone, LLP
Circuit Conflicts in Antitrust Litigation
This practical guide surveys current conflicts among the Circuit Courts of Appeal in antitrust litigation.
A Century of Legal Ethics: Trial Lawyers and the ABA Canons of Professional Ethics
The ABA Canons of Ethics was adopted in 1908 and created ethical standards for lawyers.
